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Darling's PBR Hamstrung By Brown's Promises, Says Grant Thornton

by Jason Gorringe,, London

05 October 2007

Leading business and financial adviser Grant Thornton has predicted that room for manoeuvre on any major initiatives will be limited in the forthcoming Pre-Budget Report (PBR), leading to yet more tinkering around the edges of current tax policy.

Francesca Lagerberg, Head of Grant Thornton's National Tax Office, believes that the spotlight was stolen by Gordon Brown in this year's Budget, when the then Chancellor flexed his muscle for the top job by making a raft of forward looking changes, which will hamper Darling's manoeuvrability in his Pre-Budget Report.

In the absence of a general election, it is expected that the Report would be littered with promises for action and consultations, without real immediate change.

Darling has already stated he wants to put tax simplification on the agenda, so he will want to show that this is "more than empty words".

Despite the Conservative proposal to charge non-domiciled UK residents a one-off charge of GBP25,000, Grant Thornton does not expect the new Chancellor to take the bait and make any dramatic changes to the tax treatment of this group in the PBR. However, the new team at the Treasury has already stated that this issue is on its radar.

Tax partner, Ian Luder, believes Darling will signal his intentions on the issue by refreshing the ongoing consultation - the longest running Treasury review in history.

With regards to Capital Gains Tax (CGT) on UK based assets, Luder believes that the Chancellor has an ace up his sleeve. At present, an individual's residence (and domicile) status determines CGT liability, in conjunction with where the assets are based. There are circumstances where UK assets are sold but no CGT is due. Luder believes that change is afoot which would bring the UK in line with many of its European neighbours on this issue.

And whilst Inheritance Tax (IHT) is long overdue for a progressive overhaul, Lagerberg does not believe that the Chancellor will make any big moves in this area: "The last few years have seen some avoidance rules being introduced in relation to IHT, such as the pre-owned assets regime. However, despite Brown thinking it was due an overhaul, he never went for radical change and his successor is likely to follow suit," he observed.

Equally, climate change must be addressed. Although the previous Chancellor pledged to take action on the UK's carbon footprint through the tax system, small tax measures introduced or modified over the past 10 years have seemingly done little to curb UK pollution.

Maurice Fitzpatrick, a senior tax manager, expects that there will be minor increases in Airport Passenger Duty and the like, but that Darling may look to impose his authority on green matters by increasing taxes and tax breaks available to industry thereby instigating - hopefully - a faster decrease in UK carbon emissions.

Fitzpatrick explained that: "Joe Public is fed up with continual tax increases that purport to climate change initiatives. Airport Passenger Duty has done nothing to greenhouse emissions and many believe a waste tax is merely a revenue-raiser rather than a targeted initiative to make any dent in the UK's carbon emissions. For this reason, and perhaps to curry favour with voters, Darling is expected to turn to industry to take responsibility towards the climate. There is a raft of possibilities available to the Chancellor, but to be sure, he will use the VAT system to great effect, possibly levying higher VAT on products with excessive packaging."

Lagerberg noted that there are a number of other measures that are expected to surface in the Pre Budget Report, revealing that: "HMRC is continuing its review of its existing powers. There is bound to be some reference to the next steps and there has already been some concern about whether there are going to be more requests for powers, such as access to personal bank account information, without any sign of some safeguards as could be set out in a Taxpayer's Charter. This could be a real chance for the Government to show it is keen to put taxpayers' rights on the agenda."

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